Cover Story
Get Set GO!
 Most partners feel that infrastructure consolidation and optimization will be the biggest opportunity in FY2010-11. And while verticals like government, education, manufacturing, BFSI and IT & ITES will significantly contribute to the upsurge in IT demand, the key to success will be their focus on services
CRN Network
The Indian IT market is all set to take off after a gloomy 18 months. That’s what the bi-annual CRN Channel Confidence Survey suggests.
A majority of enterprise VARs (56 percent) said the last 12 months (particularly the last six months) were as per their expectations, while for 28 percent it was slightly below expectations and 16 percent said that they were disappointed with the business generated during the last fiscal.
Over all, during FY2009-10, nearly 16 percent respondents reported a robust revenue growth of more than 30 percent as compared to the previous fiscal; 26 percent grew between 20-30 percent, and 27 percent grew between 10-20 percent. Nearly 11 percent said that their topline grew in a single digit; however 20 percent reported negative growth rates during the fiscal.
Most respondents said that while the first two quarters (AMJ and JAS) were below expectations, OND and JFM lived up to expectations as customers resumed their IT buying.
“Over the last two quarters we have seen more customers resuming IT Capex. We have already reached the pre-slowdown demand for IT solutions, and that’s an extremely good sign,” says Ajay Sawant, CEO of the Mumbai-based Orient Technologies.
Agrees Pinkesh Kotecha, CEO of the Rajkot-based Ishan Infotech, “For the last two quarters, we have seen many customers invest in Capex technologies. BFSI, which was the most recession-affected vertical, has bounced back. It is in an expansion mode, and we are seeing a momentum similar to what we had before the global recession began.”
The outlook for FY2010-11 is looking robust with nearly 19 percent respondents expecting to grow by more than 50 percent; 31 percent expecting between 30-50 percent revenue growth; 31 percent forecast a 20-30 percent growth; 15 percent between 10-20 percent and only 4 percent expect a single digit growth.
Growth verticals
While the government and education sectors have been consistent performers throughout the slowdown period, other high-spending verticals such as manufacturing, IT and ITES, government, education and BFSI have emerged as growth engines for partners during the last 6-8 months.
For many respondents, manufacturing has been a standout vertical. “The manufacturing sector, and particularly the auto segment, has contributed most to our growth over the past 8-12 months. That’s because many new auto companies set up base in Pune, and many existing ones expanded their setup leading to demand for core infrastructure solutions including clients, networking, servers and software. We implemented several 300-500 node projects in the manufacturing sector,” says Chintamani Lele, Director of the Pune-based Vintech Electronic Systems.
Rahul Meher, Founder and Managing Director of the Pune-based Leon Computers, seconds Lele. “Auto manufacturing has seen heavy investments in Pune over the last 6-8 months primarily because the sector has done well. Besides, many companies like Volkswagen and General Motors are expanding their presence in India, and this has led to opportunities in end-to-end projects.”
The other factor driving demand from the manufacturing sector has been the need for consolidation and virtualization. “Many companies with 10-20 servers have gone in for consolidation and virtualization in a bid to cut real estate and infrastructure management costs,” says Sawant.
Jayesh Mehta, CEO of the Bengaluru-based Future Businesstech, agrees. “The manufacturing industry is going through a cycle of innovation. We are seeing customers from all types of manufacturing companies investing in ERP systems, connecting their manufacturing units to sales offices, and looking at technologies that will reduce their cost of operations.”
Adds Alok Gupta, Director of the Delhi-based Cache Digitech, “We cater to several of the large steel manufacturing plants, and what we have seen over the last two years is that they have become more focused on process automation to drive cost efficiencies. There are two reasons for this. First, they want to compete globally, and hence they want to have the best manufacturing processes. Second, the recently slowdown has made them realize the benefits of IT for achieving process and cost optimization.”
Ishan Infotech, which operates in niche segments across the interiors of Gujarat, has also seen demand from manufacturing increase at a rapid pace. “In Gujarat, it’s the chemicals and engineering companies that are investing in a big way in IT. This trend has accentuated over the last couple of years. The investment is primarily around ERP implementations. However, while doing so, companies are upgrading to new hardware and opting for consolidation,” informs Kotecha.
One of the largest IT-buying sectors, IT and ITES, also witnessed a rebound and has emerged as the second-most demand-generating vertical for partners. Comments Mehta: “The sector was silent for nearly six quarters. Now they are on the rebound. There is a major technology refresh cycle going on in this sector, and while going in for refresh companies are looking at green technologies in addition to consolidation and virtualization.”
According to Sawant, a lot of opportunities over the last 12 months, especially in small to medium BPO companies, have been led by the companies’ need to put in place strong process management solutions. Also, in places like Mumbai, where the cost of real estate hasn’t seen any rationalization despite the slowdown, many BPOs are consolidating their data centers and even virtualizing them in order to save on the real estate costs.
The government continued to be the demand driver as it has been throughout the slowdown period of 2008-09. Revenue from projects from both state and central governments continues to flow for partners targeting this sector. “The government has contributed to more than 40 percent of our revenues over the past four months, and with the number of orders in the pipeline we see the trend continuing well into the year,” informs Mehta.
“Last year we deployed a large CSC project for the J&K government valued at Rs 3 crore,” says Inderpal Singh, CEO of the Jammu-based Aman Technologies. “This involved connecting 400 of their 1,100 CSCs in the state through VSAT and other backbone technologies. We are also working on deploying a data center for the state government, and supplying them with IBM blade servers. The project size is Rs 1.5 crore.”
For the next phase of SWAN, state governments are now investing heavily in computerizing and automating their departments at the district level. “We recently completed the computerization of two districts in Assam covering 40 locations. We developed online applications for the district administration, and connected all offices to the SWAN using fiber. We were the first private player to execute an eDistrict project in India in a PPP mode. The first eDistrict project was done by NIC in UP,” says Utpal Kumar Hazarika, CEO of the Guwahati-based Integrated Systems and Services.
Security and surveillance solutions have been another big investment area for the government. Discloses Manoj Bisht, CEO of Delhi-based MK Infosystems, “We recently won a contract to create an intelligent surveillance system for the Indian parliament. The project is worth Rs 40 crore, and we have Bharat Electricals and NICE as our partners. Our share of the pie is about Rs 6 crore.”
Bisht says that the approaching Commonwealth Games (CWG) will boost demand for security surveillance. “With many participating countries concerned about security at the CWG, the government is putting in place a strong perimeter security and surveillance for all stadiums and the games village. Over the next six months we expect huge opportunity there, which will then be followed by the 2011 ICC Cricket World Cup.” For FY2009-2010, government sector-led growth has seen MK Infosystems grow by 60 percent over the previous fiscal.
Meher Pophali, Director of the Nagpur-based Micropro Software Solutions, makes an interesting point. “What’s good for small solutions providers (SPs) like us is the increasing incidence of DGS&D contracts. In the absence of tenders, partners stand a better chance of selling their solutions.”
A large number of respondents say that the education sector was and will remain a growth engine for the IT industry. “With the government opening up the education sector, we are seeing a lot of momentum in it,” states Pophali. “Indian educational institutes are investing in advanced technologies and applications in order to remain competitive vis-à-vis foreign universities which will soon be setting up their operations in India. The University Grants Commission recently laid down a one-student-one-PC norm. This will significantly boost demand not just for PCs but for an entire range of IT solutions.”
Many educational institutes which have their core infrastructure in place are now going in for applications such as ERP and CRM. “We recently deployed a campus-wide information system, which is like an ERP for a university, for an Islamic university in J&K. The project was worth Rs 50 lakh,” informs Singh of Aman Technologies.
The BFSI sector, which had put a lid on expansion, is also back into the fray. Banks as well as other financial services are investing in branch expansion. Remarks Sawant: “Most banks are now looking at an aggressive expansion of both their branch networks and their RTGS services, and this will lead to all-round demand for servers, systems, networking, security and software.” Gupta agrees. “Over the last six months many of the brokers based in Mumbai and Pune are expanding to north Indian cities. With markets looking up, they will continue to expand.”
Bisht feels that, going forward, microbanking will be a key driver for banks to invest in technology. According to him, with RBI allowing mobile service providers to offer microbanking services, banks are feeling the heat, and are looking for ways to beef up their infrastructure for microbanking. “We have recently done a pilot for a large bank to roll out its core banking system on a wireless network for microbanking. We’ve been able to connect locations as far as 70-80 km away with 99.9 percent uptime. With this connectivity, the bank can easily connect to remote villages from a nearby branch.”
Changes in customer behavior
Partners believe that the slowdown has had a profound impact on the psyche of customers, and that they have become far more discerning in the way they spend on IT. More customers are looking at consolidating their IT infrastructure, and many are even virtualizing it.
“There has been a notable increase in the number of customers wanting to consolidate and virtualize their IT infrastructure, and they include even SMBs with less than 10 servers,” informs Paresh Shah, Director of the Mumbai-based PH Tecknow. “Over the last 6-8 months we have set up POCs for many of our customers for running one or two applications.”
Another change in customer behavior is that they are seeking to invest in technologies and solutions which have demonstrable ROI. States Ankit Desai, Director of the Mumbai-based CDP India, “Customers have become more demanding with ROI, whether it be storage, blade server or consolidation projects. They expect to see a clear ROI before they take a deployment decision.” Leon’s Meher says that in some of the unified messaging and CRM deployments done by his company, customers wanted the ROI to be delivered within 6-12 months.
Adds Vipul Datta, CEO of the Delhi-based FutureSoft Technologies, “Organizations want to see better ROI from IT because IT is no longer seen as a mere support function but as a business enabler. CIOs have to internally justify their IT spend and clearly demonstrate how it is contributing to the business. As a result, there’s a lot of pre-sales happening, and the onus is often on the SP to prove the ROI of any new investment.”
Sawant concurs. “With ROI becoming the main deciding point for IT investment, there’s an involvement of the CFO in the decision-making process because he wants to be convinced about the ROI deliverables of the solution before releasing the budget. While this leads to longer sales cycles, the deployment cycles become shorter because the customer is clear about what he wants the technology to deliver.”
Yogesh Godbole, Director of the Pune-based Ace Brain Systems, says that even in the government and PSU sector there is increasing emphasis on ROI. “We recently did a large project for DRDO, and it wanted us to provide clear ROI for the different technology options we pitched for. The deal was finalized only after they were convinced about the cost-effectiveness and ROI of the solution.”
The need for better ROI has also prompted CIOs to look at various financing models that allow them to convert IT Capex into Opex. “Vendors should increasingly look at providing financing options because even cash-rich customers are looking for financing so that they can deploy their cash in their core business and get better ROI,” advises Ishan’s Kotecha.
Opex models such as managed services, cloud and SaaS are taking root even among SMBs. “We see that customers are careful about committing their Capex investments and are going the Opex way. This will trigger demand for cloud computing and SaaS,” believes Mehta.
Adds Datta of FutureSoft, “The industry seems to be moving toward the infrastructure-as-a-service model. Customers are increasingly interested in vendors who can offer infrastructure management services. No wonder that today close to 20-25 OEMs are offering solutions for infrastructure management.”
Demand drivers
Most of the partners who took the survey believe that it’s the SMBs who will be the major contributors to IT demand over the next 12 months. They agree that SMBs have clearly understood the importance of IT in driving business growth. New concepts like cloud computing and software-as-a-service will make it possible for smaller businesses to use IT, and this will increase penetration.
“Until now SMBs were following a need-based approach, addressing issues as and when they arose. However, they are now taking a holistic view of IT. We see them investing in streamlining their current infrastructure through consolidation, virtualization and managed services,” says Datta.
CDP’s Desai couldn’t agree more. “SMBs are going in for desktops, laptops, servers, storage and backup. They are now providing Internet to all their employees, hence the demand for mail servers is also growing. Managed e-mail solutions are increasingly being adopted by them.”
Kotecha adds, “Among the medium-sized organizations of the SMB universe, we have seen a lot of maturity emerge in their IT investments. They are considering virtualization and consolidation, and some are even open to deploying non-Windows platforms such as Linux. Many of our MB customers are investing in data security and storage solutions.”
Says L Ashok of the Chennai-based Futurenet Technologies, “Over the past few months several customers have expressed interest in moving to a computing-as-a-service model. They are willing to move to a subscription model and pay us every month for running their IT department. They are not bothered about the technology being deployed or the vendor who’s backing us—they simply want to focus on their business without worrying about technology.”
Various government policies and initiatives (such as the right to education, investments in e-governance, and projects like UID) will drive demand in FY2010-11. Points out Desai, “Government regulations stipulating that all banks should have DR sites will be a big demand booster. Also, the UID project will spawn several new opportunities even in the private sector.”
Many respondents believe that the trend of consolidation and virtualization will help companies free up a lot of their budgets which they will likely invest in ROI-driven and business-critical IT solutions.
Focus areas
With changing customer behavior and a changing technology investment scenario, partners have their work cut out for FY2010-11. Respondents said that any technology which helps save costs for customers will be an area of focus, and this includes green IT, unified communications and video conferencing.
With consolidation and virtualization being the key themes, most are looking at building strong business practices, and this makes deep-selling into existing accounts a priority for a majority of them. “Consolidation and virtualization will create other opportunities in high-end servers, intelligent and high-performance switches and routers, WAN optimization and application acceleration tools, and VPN security,” forecasts Datta.
With customers increasingly preferring IT Opex models, managed services, cloud and SaaS also figure high on the partners’ to-do list. “Services will be a key part of a partner’s portfolio, and hence we have been steadily moving into this space. Our aim is to offer cloud and SaaS, and we are readying to sign up with key vendors,” says Leon’s Meher.
“We are betting heavily on RIMs,” informs Sawant. “Managed security will be another important area for us. We are also focusing on offering DR and business continuity as a service.”
Meanwhile, software resellers are focusing on software applications. “In the SMB segment we have witnessed companies realizing the productivity boost that a CRM application can provide, and then deploying it. They are also investing in mailing solutions and server operating systems,” says Shah.
Key challenges
Yet even as market sentiments have improved considerably, challenges remain. Primary among them are the delays in payment which continue to constraint partners’ working capital and their ability to execute more projects. “Payment cycles have increased from 30 days to 45 days because customers do not want to pay as their inflow has not yet started. They are also treading with caution,” says Sawant.
Agrees Lele, “Payment cycles have lengthened to 45-60 days now, which is a worrying trend because on one side we have payment delays and on the other side distributors are not willing to extend the credit period. Banks are still conservative in lending, so that option has also dried up.”
“Payment cycles have increased to 50-75 days because there’s a lot of desperation among partners to pick up business on any terms,” says Datta. “I believe this scenario will continue for at least 2-3 quarters. To improve profitability for partners, vendors need to do partner categorization so that partners without the right skill set do not overcrowd a segment.”
Meher cautions: “While several opportunities might be coming their way, partners have to be judicious in filtering out the good ones from the bad. In segments such as real estate and infrastructure there has been a higher incidence of payment delays and defaults.”
Says Mahendran Srinivasan, Director of the Chennai-based Pranav Televentures, “Vendors need to provide more incentives, margins and market development funds for companies that are in the solutions space. Without such funding it’s difficult to grow the market. We also want vendors to see partners from a long-term perspective, and align or invest accordingly.”
-------------- Inputs from Dhaval Valia, Ramdas S, Tabrez Khan and Varun Agarwal |